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Retail ETFs In Focus Ahead Of Black Friday

With the 2012 holiday season just around the corner, the U.S. retail sector is already gearing up for what could be another make-or-break year for many companies. Many retailers generate significant portions of annual revenues and profit during the holiday months of November and December, with Black Friday and Cyber Monday sales accounting for a significant portion of profits. And with this year’s rather dreary global economic outlook, companies have already begun ramping up advertisements and marketing strategies to get Americans on board again with the holiday shopping craze [see also Consumer-Centric ETFdb Portfolio].

According to the National Retail Federation, up to 147 million shoppers are expected to visit stores and shop online this Black Friday weekend. But with many Americans still feeling the pinch, average holiday gift budgets are forecasted to remain conservative as cash-strapped shoppers reign in their spending; analysts expect the average holiday shopper to spend $749.51 this season, up slightly from the $740.57 that was actually spent last year. NRF President and CEO Mathew Shay believes that “More than half of Americans this holiday season will feel the impact of the economy and will compensate by doing what they’ve been doing for several years – looking for ways to cut any corners, comparative shop online and in stores more often, and even planning to travel less or not at all.”

Though consumer spending is not expected to hit its pre-recession highs this holiday season, the outlook is “cautiously optimistic” despite the challenges seen in our current economic environment. For those looking to make a play on the biggest shopping season of the year, we outline four retail ETF options that could see some high levels of activity in the next few weeks [see also Free Report: How To Pick The Right ETF Every Time]:

SPDR S&P Retail ETF (XRT): With over $610 million in total assets and an average daily trading volume of 3.6 million, this ETF is by far the largest, most popular and most heavily-traded retail fund on the market. XRT offers concentrated exposure to traditional brick-and-mortar retail giants, spreading exposure across about 95 individual holdings. Top holdings include Barnes & Noble (BKS), Netflix (NFLX), SUPERVALU (SVU), Stage Stores (SSI), HSN (HSNI) and AutoZone (AZO).

PowerShares Dynamic Retail Portfolio (PMR): This ETF is part of the PowerShares lineup of “intelligent” ETFs linked to benchmarks that use quantitative analysis in an attempt to outperform traditional cap-weighted indexes. The resulting portfolio is rather shallow with only about 30 holdings, though allocations are nicely spread out across large-, mid- and small-cap firms. CVS Caremark (CVS), Kroger (KR), Costco (COST), Wal-Mart (WMT) and Limited Brands (LTD) make up PMR’s top five holdings.

Market Vectors Retail ETF (RTH): Van Eck’s RTH is yet another compelling option, as it charges an expense ratio of only 35 basis points, making it tied with XRT for the cheapest fund in the retail ETF category. The fund’s portfolio consists of only about 25 individual securities, with Wal-Mart, online behemoth Amazon.com (AMZN) and Home Depot (HD) given the heaviest weightings.

Direxion Daily Retail Bull 3x Shares (RETL): For those willing to stomach the risk, this leveraged ETF can be a powerful tool, with its 3x exposure allowing investors to make big bets on this year’s holiday shopping season. Currently, RETL’s underlying index’s sector weightings are heavily titled towards hypermarkets and super centers, home improvement, apparel and internet retail equities.